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Test Bank Fundamentals of Corporate Finance 11th Edition Ross WesterfieldJordan Completed download Test Bank for Fundame...

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Test Bank Fundamentals of Corporate Finance 11th Edition Ross Westerfield Jordan

Completed download Test Bank for Fundamentals of Corporate Finance 11 th Edition Ross Westerfield Jordan: https://testbankarea.com/download/test-bank-fundamentals-corporate-finance-11thedition-ross-westerfield-jordan Completed download Solutions Manual for Fundamentals of Corporate Finance 11th Edition Ross Westerfield Jordan

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Chapter 03 Working With Financial Statements Test Tes t Bank Key 1.

Activities of a firm that require the spending of cash are known as:

A.

Sources of cash.

B. Uses of cash. C. Cash collections.

D. E.

Cash receipts. Cash on hand.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

1

2.

The sources and uses of cash over a stated period of time are reflected on the:

A. B. C.

Income statement. Balance sheet. Tax reconciliation statement.

D. Statement of cash flows. E. Statement of operating position.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Statement of cash flows

3.

A common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of:

A. Total assets. B. Total equity. C.  Net income. D. Taxable income. E. Sales.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

4.

Which one of the following standardizes items on the income statement and balance sheet relative to their values as of a chosen point in time?

A. B.

Statement of standardization. Statement of cash flows.

C. Common-base year statement. D. Common-size statement.

E.

Base reconciliation statement.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

2

5.

Relationships determined from a firm's financial information and used for comparison purposes are known as:

A. Financial ratios. B. Identities.

C. D. E.

Dimensional analysis. Scenario analysis. Solvency analysis.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Financial statement analysis

6.

Which one of these identifies the relationship between the return on assets and the return on equity?

A. B. C.

Profit margin. Profitability determinant. Balance sheet multiplier.

D. DuPont identity. E. Debt-equity ratio.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

7.

The U.S. government coding system that classifies a firm by the nature of its business operations is known as the:

A. B.

Centralized Business Index. Peer Grouping codes.

C. Standard Industrial Classification codes. D. Governmental ID codes.

E.

Government Engineered Coding System.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-04 Some of the problems and pitfalls in financial statement statement analysis. Section: 3.5 Using Financial Statement Information Topic: Financial statement analysis

3

8.

Which one of the following is a source of cash for a non-tax-paying firm?

A. B. C.

Increase in accounts receivable. Increase in depreciation. Decrease in accounts payable.

D. Increase in common stock. E. Increase in inventory.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

9.

Which one of the following is a use of cash?

A. B. C. D.

Decrease in fixed assets. Decrease in inventory. Increase in long-term debt. Decrease in accounts receivables.

E. Decrease in accounts payable.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

10.

Which one of the following is a source of cash?

A.

Repurchase of common stock,

B. Acquisition of debt, C. Purchase of inventory,

D. E.

Payment to a supplier, Granting credit to a customer,  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

4

11.

Which one of the following is a source of cash?

A. B. C. D.

Increase in accounts receivable, Decrease in common stock, Increase in fixed assets, Decrease in accounts payable,

E. Decrease in inventory,  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

12.

On the statement of cash flows, which of the following are considered financing activities?

I. Increase in long-term debt. II. Decrease in accounts payable. III. Interest paid. IV. Dividends paid.

A. I and IV only. B. III and IV only.

C. D. E.

II and III only. I, III, and IV only. I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Statement of cash flows

5

13.

On the statement of cash flows, which of the following are considered operating activities?

I. Costs of goods sold. II. Decrease in accounts payable. III. Purchase of equipment. IV. Dividends paid.

A. B.

I and III only. III and IV only.

C. I and II only. D. I, III, and IV only.

E.

I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Statement of cash flows

14.

According to the statement of cash flows, an increase in inventory will _____ the cash flow from _____ activities.

A. B.

Increase; operating. Decrease; financing.

C. Decrease; operating. D. Increase; financing.

E.

Increase; investment.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Statement of cash flows

6

15.

According to the statement of cash flows, an increase in interest expense will _____ the cash flow from _____ activities.

A. Decrease; operating. B. Decrease; financing.

C. D. E.

Increase; operating. Increase; financing. Increase; investment.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Statement of cash flows

16.

On a common-size balance sheet all accounts for the current year are expressed as a percentage of:

A. B. C.

Sales for the period. The base year sales. Total equity for the base year.

D. Total assets for the current year. E. Total assets for the base year.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

7

17.

On a common-base year financial statement, accounts receivables for the current year will be expressed relative to which one of the following?

A. B. C. D.

Current year sales. Current year total assets. Base-year sales. Base-year total assets.

E. Base-year accounts receivables.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

18.

Which of the following ratios are measures of a firm's liquidity?

I. Cash coverage ratio. II. Interval measure. III. Debt-equity ratio. IV. Quick ratio.

A.

I and III only.

B. II and IV only. C. I, III, and IV only.

D. E.

I, II, and III only. I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

8

19.

An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.

A. B.

Increase in the cash ratio. Increase in the net working capital to total assets ratio.

C. Decrease in the quick ratio. D. Decrease in the cash coverage ratio.

E.

Increase in the current ratio.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

20.

An increase in which one of the following will increase in crease a firm’s quick ratio without affecting its cash ratio?

A. B. C.

Accounts payable. Cash. Inventory.

D. Accounts receivable. E. Fixed assets.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

21.

A supplier, who requires payment within 10 days, should be most concerned with which one of the following ratios when granting credit?

A.

Current.

B. Cash, C. Debt-equity,

D. E.

Quick, Total debt,  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios 9

22.

A firm has an interval measure of 48. This means that the firm has sufficient liquid assets to do which one of the following?

A. B. C.

Pay all of its debts that are due within the next 48 hours. Pay all of its debts that are due within the next 48 days. Cover its operating costs for the next 48 hours.

D. Cover its operating costs for the next 48 days. E. Meet the demands of its customers for the next 48 hours.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

23.

Ratios that measure a firm’s liquidity are known as _____ ratios.

A. B.

Asset management. Long-term solvency.

C. Short-term solvency. D. Profitability.

E.

Book value.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

24.

Which one of the following statements is correct?

A. B. C. D.

If the total debt ratio is greater than .50, then the debt-equity ratio must be less than 1.0. Long-term creditors would prefer the times interest earned ratio be 1.4 rather than 1.5. The debt-equity ratio can be computed as 1 plus the equity multiplier. An equity multiplier of 1.2 means a firm has $1.20 in sales for every $1 in equity.

E. An increase in the depreciation expense will not affect the cash coverage ratio.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

10

25.

If a firm has a debt-equity ratio of 1.0, then its total debt ratio must be which one of the following?

A.

0

B. .5 C. 1.0

D. E.

1.5 2.0  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

26.

The cash coverage ratio directly measures the ability of a firm to meet which one of its following obligations?

A. B.

Payment to supplier. Payment to employee.

C. Payment of interest to a lender. D. Payment of principal to a lender.

E.

Payment of a dividend to a shareholder.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

27.

All-State Moving had sales of $899,000 in 2014 and $967,000 in 2015. The firm's current accounts remained constant. Given this information, which one of the following statements must be true?

A. B.

The total asset turnover rate increased. The days' sales in receivables increased.

C. The net working capital turnover rate increased. D. The fixed asset turnover decreased.

E.

The receivables turnover rate decreased.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

11

28.

The Corner Hardware has succeeded in increasing the amount of goods it sells while holding the amount of inventory on hand at a constant level. Assume that both the cost per unit and the selling price per unit also remained constant. This accomplishment will be reflected in the firm's financial ratios in which one of the following ways?

A. B. C.

Decrease in the inventory turnover rate. Decrease in the net working capital turnover rate. Increase in the fixed asset turnover rate.

D. Decrease in the day's sales in inventory. E. Decrease in the total asset turnover rate.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

29.

RJ's has a fixed asset turnover rate of 1.26 and a total asset turnover rate of .97. Sam's has a fixed asset turnover rate of 1.31 and a total asset turnover rate of .94. Both companies have similar operations. Based on this information, RJ's must be doing which one of the following?

A.

Utilizing its fixed assets more efficiently than Sam's.

B. Utilizing its total assets more efficiently than Sam's. C. Generating $1 in sales for every $1.26 in net fixed assets.

D. E.

Generating $1.26 in net income for every $1 in net fixed assets. Maintaining the same level of current assets as Sam's.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

30.

Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as _____ ratios.

A. B. C.

Asset management. Long-term solvency. Short-term solvency.

D. Profitability. E. Turnover.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Profitability ratios

12

31.

If a firm produces a 13 percent return on assets and also a 13 percent return on equity, then the firm:

A. B. C. D.

May have short-term, but not long-term debt. Is using its assets as efficiently as possible. Has no net working capital. Has a debt-equity ratio of 1.0.

E. Has an equity multiplier of 1.0.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Profitability ratios

32.

Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

A. B. C. D.

Return on equity. Return on assets. Profit margin. Total asset turnover.

E. Price-earnings ratio.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

33.

Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?

A.

Al's has more net income than Ben's.

B. Ben's is increasing its earnings at a faster rate than the Al's. C. Al's has a higher market value per share than does Ben's.

D. E.

Ben's has a lower market-to-book ratio than Al's. Al's has a higher earnings growth rate than Ben's.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

13

34.

Tobin’s Q relates the market value of a firm’s assets to which one of the following?

A. B. C. D.

Initial cost of creating the firm. Current book value of the firm. Average asset value of similar firms. Average market value of similar firms.

E. Today's cost to duplicate those assets.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

35.

The price-sales ratio is especially useful when analyzing firms that have which one of the following?

A.

Volatile market prices.

B.  Negative earnings. C. Positive PEG ratios.

D. E.

A negative Tobin's Q. Increasing sales.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

36.

Lenders probably have the most interest in which one of the following sets of ratios?

A.

Return on assets and profit margin.

B. Long-term debt and times interest earned. C. Price-earnings and debt-equity.

D. E.

Market-to-book and times interest earned. Return on equity and price-earnings.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

14

37.

Which one of the following accurately describes the three parts of the DuPont identity?

A. B.

Operating efficiency, equity multiplier, and profitability ratio. Financial leverage, operating efficiency, and profitability ratio.

C. Equity multiplier, profit margin, and total asset turnover. D. Debt-equity ratio, capital intensity ratio, and profit margin.

E.

Return on assets, profit margin, and equity multiplier.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

38.

An increase in which of the following will increase the return on equity, all else constant?

I. Total asset turnover. II. Net income. III. Total assets. IV. Debt-equity ratio.

A. B.

I only. I and II only.

C. I, II, and IV only. D. I, II, and III only.

E.

I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

15

39.

Which of the following can be used to compute the return on equity?

I. Profit margin  Return on assets II. Return on assets  Equity multiplier III. Profit margin  Total asset turnover  Debt-equity ratio IV. Net income / Total assets

A. II only. B. II and III only.

C. D. E.

II and IV only. I, II, and III only. I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

40.

The DuPont identity can be used to help managers answer which of the following questions related to a firm’s operations?

I. How many sales dollars has the firm generated per each dollar of assets? II. How many dollars of assets has a firm acquired per each dollar in shareholders’ equity? III. How much net profit is a firm generating per dollar of sales? IV. Does the firm have the ability to meet its debt obligations in a timely manner?

A. B.

I and III only. II and IV only.

C. I, II, and III only.

D. E.

II, III and IV only. I, II, III, and IV.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

16

41.

A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action?

A. Equity multiplier. B. Total asset turnover.

C. D. E.

Profit margin. Return on assets. Return on equity.

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

42.

Which one of the following statements is correct?

A. B.

Book values should always be given precedence over market values. Financial statements are rarely used as the basis for performance evaluations.

C. Historical information is useful when projecting a firm’s future performance. D. Potential lenders place little value on financial statement information.

E.

Reviewing financial information over time has very limited value.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-04 Some of the problems and pitfalls in financial statement statement analysis. Section: 3.5 Using Financial Statement Information Topic: Financial statement analysis

43.

The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current:

A. Financial ratios to the firm's historical ratios. B. Financial statements to the financial statements of similar firms operating in other countries.

C. D. E.

Financial ratios to the average ratios of all firms located within the same geographic area. Financial statements to those of larger firms in unrelated industries. Financial statements to the projections that were created based on Tobin's Q.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Intermediate  Learning Objective: 03-04 Some of the problems and pitfalls in financial statement analysis. analysis. Section: 3.5 Using Financial Statement Information Topic: Financial statement analysis

17

44.

Which of the following represent problems encountered when comparing the financial statements of two separate entities?

I. Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. II. The operations of the two firms may vary geographically. III. The firms may use differing accounting methods. IV. The two firms may be seasonal in nature and have different fiscal year ends.

A. B. C. D.

I and II only. II and III only. I, III, and IV only. I, II, and III only.

E. I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-04 Some of the problems and pitfalls in financial statement statement analysis. Section: 3.5 Using Financial Statement Information Topic: Financial statement analysis

45.

Barlow’s Feed had the following current account values. What effect did the change in net working capital have on the firm's cash flows for the year?

Cash Accounts receivable Inventory Accounts payable

$

Beginning of Year 179 415 987 562

End of Year $

164 480 923 649

A.  Net use of cash of $73. B. Net use of cash of $88. C.  Net source of cash of $86. D.  Net source of cash of $101. E.  Net source of cash of $135.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

18

46.

During the year, Al’s Tools decreased its accounts receivable by receivable by $160, increased its inventory by $115, and decreased it s accounts  payable by $70. How did these three accounts affect the fir m's cash flows for the year?

A.  Net source of cash of $120. B.  Net source of cash of $205. C.  Net source of cash of $45. D.  Net use of cash of $115. E.  Net use of cash of $25.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Sources and uses of cash

47.

A firm generated net income of $911. The depreciation expense was $47 and dividends were paid in the amount of $25. Accounts  payables increased by $15, accoun ts receivables increased by $28, inventory decreased b y $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity?

A. B.

$776 $865

C. $959 D. $922

E.

$985  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.1 Cash Flow and Financial Statements: A Closer Look  Topic: Operating activities

48.

A firm has sales of $3,340, net income of $274, net fixed assets of $2,600, and current assets of $920. The firm has $430 in inventory. What is the common-size statement value of inventory?

A. 12.22 percent B. 44.16 percent

C. D. E.

16.54 percent 13.36 percent 46.74 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

19

49.

A firm has sales of $4,300, net income of $320, total assets of $4,800, and total equity of $2,950. Interest expense is $65. What is the common-size statement value of the interest expense?

A.

.89 percent

B. 1.51 percent C. 1.69 percent

D. E.

2.03 percent 1.35 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

50.

Last year, which is used as the base year, a firm had cash of $52, accounts receivable of $223, inventory of $509, and net fixed assets of $1,107. This year, the firm has cash of $61, accounts receivable of $204, inventory of $527, and net fixed assets of $1,216. What is the common-base year value of inventory?

A. B. C.

.67 .91 .88

D. 1.04 E. 1.18  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

51.

Duke’s Garage has cash of $68, accounts receivable of $142, accounts payable of $235, and inventory of $318. What is the value valu e of the quick ratio?

A. B. C.

2.25 .53 .71

D. .89 E. 1.35  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

20

52.

Uptown Men's Wear has accounts payable of $2,214, inventory of $7,950, cash of $1,263, fixed assets of $8,400, accounts receivable of $3,907, and long-term debt of $4,200. What is the value of the net working capital to total assets ratio?

A. B. C.

.31 .42 .47

D. .51 E. .56  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

53.

A firm has total assets of $310,100 and net fixed assets of $168,500. The average daily operating costs are $2,980. What is the value of the interval measure?

A.

31.47 days

B. 47.52 days C. 56.22 days

D. E.

68.05 days 104.62 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

54.

A firm has a debt-equity ratio of .57. What is the total debt ratio?

A. .36 B. .30

C. D. E.

.44 2.27 2.75  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

21

55.

A firm has total debt of $4,850 and a debt-equity ratio of .57. What is the value of the total assets?

A. B. C. D.

$6,128.05 $7,253.40 $9,571.95 $11,034.00

E. $13,358.77  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

56.

A firm has sales of $96,400, costs of $53,800, interest paid of $2,800, and depreciation of $7,100. The tax rate is 34 percent. What is the value of the cash coverage ratio?

A. 15.21 B. 12.14

C. D. E.

17.27 23.41 12.68  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

57.

Terry’s Pets paid $2,380 in interest and $2,200 in dividends last year. The times interest earned ratio is 2.4 and the depreciation deprec iation expense is $760. What is the value of the cash coverage ratio?

A. B. C.

1.42 .77 2.94

D. 2.72 E. 2.46  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

22

58.

The Up-Towner has sales of $913,400, costs of goods sold of $579,300, inventory of $187,400, and accounts receivable of $78,900. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?

A. B.

74.19 days 84.69 days

C. 118.08 days D. 106.46 days

E.

121.07 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

59.

Flo’s Flowers has accounts receivable of $4,511, inventory of $1,810, sales of $138,609, and cost of goods sold of $64,003. $ 64,003. How many days does it take the firm to sell its inventory and collect the payment on the sale assuming that all sales are on credit?

A.

11.88 days

B. 22.20 days C. 16.23 days

D. E.

14.50 days 18.67 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

60.

A firm has net working capital of $2,715, net fixed assets of $22,407, sales of $31,350, and current liabilities of $3,908. How many dollars worth of sales are generated from every $1 in total assets?

A. $1.08 B. $1.14

C. D. E.

$1.19 $1.26 $1.30  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

23

61.

TJ’s has annual sales sales of $813,200, total debt of $176,000, total equity of $395,000, and a profit margin of 5.63 percent. What is the return on assets?

A. 8.02 percent B. 6.48 percent

C. D. E.

9.94 percent 7.78 percent 11.59 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Profitability ratios

62.

Reliable Cars has sales of $807,200, total assets of $1,105,100, and a profit margin of 9.68 percent. The firm has a total debt ratio of 64  percent. What is the return on equity?

A. B. C. D.

13.09 percent 16.04 percent 21.03 percent 18.56 percent

E. 19.64 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Profitability ratios

63.

Bernice’s has $823,000 in sales. The profit margin is 3.9 percent and the firm has 7,500 shares of stock outstanding. The mar ket ket price  per share is $15. What is the price-earnings rati o?

A. 3.51 B. 3.98

C. D. E.

4.42 3.15 4.27  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

24

64.

Hungry Lunch has net income of $68,710, a price-earnings ratio of 13.7, and earnings per share of $.24. How many shares of stock are outstanding?

A. B. C. D.

13,558 20,897 185,745 171,000

E. 286,292  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

65.

A firm has 160,000 shares of stock outstanding, sales of $1.94 million, net income of $126,400, a price-earnings ratio of 21.3, and a book value per share of $7.92. What is the market-to-book ratio?

A. 2.12 B. 1.84

C. D. E.

1.39 2.45 2.69  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

66.

Oscar's Dog House has a profit margin of 5.6 percent, a return on assets of 12.5 percent, and an equity multiplier of 1.49. What is the return on equity?

A.

17.14 percent

B. 18.63 percent C. 19.67 percent

D. E.

21.69 percent 22.30 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

25

67.

Taylor's Men's Wear has a debt-equity ratio of 56 percent, sales of $829,000, net income of $38,300, and total debt of $206,300. What is the return on equity?

A.

3.32 percent

B. 10.40 percent C. 5.74 percent

D. E.

18.57 percent 14.16 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis

68.

A firm has a debt-equity ratio of 62 percent, a total asset turnover of 1.24, and a profit margin of 5.1 percent. The total equity is $489,600. What is the amount of the net income?

A. B.

$28,079 $19,197

C. $50,159 D. $40,451

E.

$52,418  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

26

69.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the quick ratio at the end of the year?

A.

.42

B. 1.24 C. 1.32

D. E.

.67 .79  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

27

70.

Use the below information to answer the following question.

Income Statement For the Year $827,500 611,800 23,100

 Net sales COGS Depreciation EBIT Interest

$192,600 9,700

Taxable income Taxes

$182,900 6,200

 Net income

176,700

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

How many days of sales are in receivables at year-end?

A. B. C. D.

51.40 40.32 54.53 29.41

E. 38.00

28

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

29

71.

Use the below information to answer the following question.

Income Statement For the Year $827,500 611,800 23,100

 Net sales COGS Depreciation EBIT Interest

$192,600 9,700

Taxable income Taxes

$182,900 6,200

 Net income

176,700

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the price-sales ratio if the market price is $43.20 per share? (Use end-of-year values)

A. B. C.

2.43 3.92 3.67

D. 4.28 E. 4.51

30

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

31

72.

Use the below information to answer the following question.

Income Statement For the Year $827,500 611,800 23,100

 Net sales COGS Depreciation EBIT Interest

$192,600 9,700

Taxable income Taxes

$182,900 6,200

 Net income

176,700

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is debt-equity ratio at year-end?

A. B. C.

.27 62 1.21

D. .84 E. 1.06

32

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

33

73.

Use the below information to answer the following question.

Income Statement For the Year $827,500 611,800 23,100

 Net sales COGS Depreciation EBIT Interest

$192,600 9,700

Taxable income Taxes

$182,900 6,200

 Net income

176,700

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the cash coverage ratio for the year?

A.

8.43

B. 22.24 C. 11.64

D. E.

19.86 18.22

34

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

35

74.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the return on equity using year-end values?

A. B.

24.26 percent 15.38 percent

C. 20.05 percent D. 19.96 percent

E.

25.05 percent

36

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

37

75.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the amount of the dividends paid during the year?

A. B. C. D.

$89,300 $300 $103,200 $31,200

E. $7,300

38

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

39

76.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the amount of the cash flow from investment activity for the year?

A. B. C.

$51,150 $21,850 $29,300

D. $49,950 E. $39,400

40

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

41

77.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

Total assets

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets

What is the net working capital to total assets ratio at year-end?

A. B.

24.18 percent 36.82 percent

C. 27.22 percent D. 37.79 percent

E.

2.90 percent

42

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

43

78.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets Total assets

How many days on average does it take to sell the inventory? (Use year-end values)

A. B. C. D.

128.13 days 74.42 days 219.63 days 147.46 days

E. 177.13 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

44

79.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets Total assets

How many dollars of sales are being generated from every dollar of net fixed assets? (Use year-end values)

A. B. C.

$.88 $1.87 $1.46

D. $1.17 E. $1.23  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

45

80.

Use the belo

Income Stat  Net sales COGS Depreciati EBIT Interest Taxable in   Taxes  Net income

Bal Cash Accounts r    Inventory  Net fixed a Total asset Accounts p   Long-term Common s Retained e Total Liab.

What is the e

A. B. C.

1.67 1.72 1.93

D. 1.84 E. 2.03

46

Equity multiplier at year-end = $882,400 / ($82,000 + 397,900) = 1.84

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

47

81.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets Total assets

What is the times interest earned ratio for the year?

A. B.

9.63 6.46

C. 10.79 D. 14.97

E.

16.05

48

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

49

82.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets Total assets

What is the net cash flow to stockholders for the year?

A.

-$1,300

B. $300 C. -$7,000

D. E.

$95,900 $7,300

50

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

51

83.

Use the below information to answer the following question.

Income Statement For the Year $631,000 442,220 28,100

 Net sales COGS Depreciation EBIT Interest

$160,700 14,900

Taxable income Taxes

$145,800 49,600

 Net income

96,200

Balance Sheet Beginning of Year $ 38,200 91,400 203,900 516,100

End of Year $43,700 86,150 214,600 537,950

849,600

$882,400

Accounts payable Long-term debt Common stock ($1 par value) Retained earnings

$136,100 329,500 75,000 309,000

104,300 298,200 82,000 397,900

Total Liab. & Equity

$849,600

882,400

Cash Accounts receivable Inventory  Net fixed assets Total assets

How does accounts payable affect the statement of cash flows for the year?

A. B. C. D.

a use of $5,250 of cash as investment financing activity a source of $31,800 of cash as an operating activity a source of $4,200 of cash as a financing activity a source of $5,250 of cash as an operating activity

E. a use of $31,800 of cash as an operating activity

52

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

84.

Big Tree Lumber has earnings per share of $1.36. The firm's earnings have been increasing at an average rate of 2.9 percent annually and are expected to continue doing so. The firm has 21,500 shares of stock outstanding at a price per share of $23.40. What is the firm's PEG ratio?

A. B. C. D.

2.27 11.21 4.85 3.94

E. 5.93  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

85.

Townsend Enterprises has a PEG ratio of 5.3, net income of $49,200, a price-earnings ratio of 17.6, and a profit margin of 7.1 percent. What is the earnings growth rate?

A. B.

2.48 percent 1.06 percent

C. 3.32 percent D. 5.20 percent

E.

10.60 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

53

86.

A firm has total assets with a current book value of $71,600, a current market value of $82,300, and a current replacement cost of $90,400. What is the value of Tobin's Q?

A. B. C. D.

.85 .87 .90 .94

E. .91  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

87.

Dixie Supply has total assets with a current book value of $368,900 and a current replacement cost of $486,200. The market value of these assets is $464,800. What is the value of Tobin's Q?

A. B.

.79 .76

C. .96 D. 1.26

E.

1.05  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Basic  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

88.

Dandelion Fields has a Tobin's Q of .96. The replacement cost of the firm's assets is $225,000 and the market value of the firm's debt is $101,000. The firm has 20,000 shares of stock outstanding and a book value per share of $2.09. What is the market to book ratio?

A. 2.75 times B. 3.18 times

C. D. E.

3.54 times 4.01 times 4.20 times  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

54

89.

A firm has annual sales of $416,000, a price-earnings ratio of 18, and a profit margin of 3.7 percent. There are 12,000 shares of stock outstanding. What is the price-sales ratio?

A.

.97

B. .67 C. 1.08

D. E.

1.15 .86  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

90.

Lassiter Industries has annual sales of $328,000 with 8,000 shares of stock outstanding. The firm has a profit margin of 4.5 percent and a  price-sales ratio of 1.20. What is the firm's price-earnin gs ratio?

A. B. C.

21.9 17.4 18.6

D. 26.7 E. 24.3  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  Difficulty: Intermediate  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Market value ratios

91.

Drive-Up has sales of $31.4 million, total assets of $27.6 million, and total debt of $14.9 million. The profit margin is 3.7 percent. What is the return on equity?

A.

6.85 percent

B. 9.15 percent C. 11.08 percent

D. E.

13.31 percent 14.21 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-02  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Profitability ratios

55

92.

Corner Supply has a current accounts receivable balance of $246,000. Credit sales for the year just ended were $2,430,000. How many days on average did it take for credit customers to pay off their accounts during this past year?

A. B. C.

44.29 days 55.01 days 55.50 days

D. 36.95 days E. 41.00 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-03  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

93.

BL Industries has ending inventory of $302,800 and cost of goods sold for the year just ended was $1.41 million. On average, how long did a unit of inventory sit on the shelf before it was sold?

A. B.

47.64 days 22.18 days

C. 78.38 days D. 61.78 days

E.

83.13 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-04  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

94.

Coulter Supply has a total debt ratio of .46. What is the equity multiplier?

A. B. C.

.89 1.17 1.47

D. 1.85 E. 2.17  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-05  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

56

95.

High Mountain Foods has an equity multiplier of 1.72, a total asset turnover of 1.16, and a profit margin of 4.5 percent. What is the return on equity?

A. B. C. D.

11.94 percent 19.95 percent 12.96 percent 14.38 percent

E. 8.98 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-07   Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

96.

Lancaster Toys has a profit margin of 5.1 percent, a total asset turnover of 1.84, and a return on equity of 16.2 percent. What is the debtequity ratio?

A.

.42

B. .73 C. .81

D. E.

.64 .83  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-08  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

97.

Best-Ever Chicken has a debt-equity ratio of .94. Return on assets is 8.5 percent, and total equity is $520,000. What is the net income?

A. B.

$44,200 $88,880

C. $85,748 D. $41,548

E.

$74,909  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-12  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

57

98.

Canine Supply has sales of $2,800, total assets of $1,900, and a debt-equity ratio of .5. Its return on equity is 15 percent. What is the net income?

A. B. C. D.

$210 $130 $240 $350

E. $190  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-18  Learning Objective: 03-03 The determinants determinants of a firms profitability. Section: 3.4 The DuPont Identity Topic: DuPont identity

99.

Billings, Inc. has net income of $161,000, a profit margin of 7.6 percent, and an accounts receivable balance of $127,100. Assume that 66 percent of sales are on credit. What is the days' sales in receivables?

A. B.

21.90 days 27.56 days

C. 33.18 days D. 35.04 days

E.

36.19 days  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-19  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Asset management ratios

100.

Stone Walls has a long-term debt ratio of.6 and a current ratio of 1.2. Current liabilities are $800, sales are $7,800, profit margin is 6.5  percent, and return on equity is 15.5 percent. What is the amount of the fir m’s m’s net fixed assets?

A.

$8,880.15

B. $8,017.43 C. $7,666.67

D. E.

$5,848.15 $8,977.43  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-20  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Ratio analysis

58

101.

A firm has a debt-total asset ratio of 58 percent and a return on total assets of 13 percent. What is the return on equity?

A.

26.27 percent

B. 30.95 percent C. 45.00 percent

D. E.

22.41 percent 13.50 percent  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-22  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. ratios. Section: 3.3 Ratio Analysis Topic: Ratio analysis

102.

The Docksider has net income for the most recent year of $24,650. The tax rate was 15 percent. The firm paid $1,800 in total interest expense and deducted $2,900 in depreciation expense. What was the cash coverage ratio for the year?

A. B. C.

20.48 times 11.48 times 12.39 times

D. 18.72 times E. 13.69 times  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-23  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Long-term solvency ratios

103.

Beach Wear has current liabilities of $350,000, a quick ratio of 1.65, inventory turnover of 3.2, and a current ratio of 2.9. What is the cost of goods sold?

A. B. C.

$980,000 $1,060,000 $1,200,000

D. $1,400,000 E. $1,560,000  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Apply  EOC: 3-24  Learning Objective: 03-02 How to compute and, more importantly, importantly, interpret some common ratios. Section: 3.3 Ratio Analysis Topic: Short-term solvency ratios

59

104.

Which one of these correctly expresses the calculation of the common-size, base year value of inventory for 2015? Assume 2014 is the  base year.

A. B.

2015 inventory / 2015 Total assets 2015 inventory / 2014 inventory

C. (2015 inventory / 2015 total assets) / (2014 inventory / 2014 total assets) ) D. (2015 inventory / 2014 inventory) / (2015 total assets / 2014 total assets)

E.

(2015 inventory / 2015 sales) / (2014 inventory / 2014 sales)

 AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-01 How to standardize financial statements for comparison comparison purposes. Section: 3.2 Standardized Financial Statements Topic: Standardized financial statements

105.

Which of these are factors to consider when comparing utility firms that generate electric power and have the same SIC code?

I. Type of ownership. II. Regulatory considerations. III. Fiscal year end. IV. Methods of power generation.

A. B. C. D.

III only. II, and III only. I, II, and III only. II, III, and IV only.

E. I, II, III, and IV.  AACSB: Analytic  Accessibility: Keyboard Navigation  Blooms: Understand   Difficulty: Basic  Learning Objective: 03-04 Some of the problems and pitfalls in financial statement statement analysis. Section: 3.5 Using Financial Statement Information Topic: Financial statement analysis

60

Chapter 03 Working With Financial Statements Summary Category

# of Questions

AACSB: Analytic

105

Accessibility: Keyboard Navigation

105

Blooms: Apply

59

Blooms: Understand

46

Difficulty: Basic

58

Difficulty: Intermediate

34

EOC: 3-02

1

EOC: 3-03

1

EOC: 3-04

1

EOC: 3-05

1

EOC: 3-07

1

EOC: 3-08

1

EOC: 3-12

1

EOC: 3-18

1

EOC: 3-19

1

EOC: 3-20

1

EOC: 3-22

1

EOC: 3-23

1

EOC: 3-24

1

Learning Objective: 03-01 How to standardize financial statements for comparison purposes.

21

Learning Objective: 03-02 How to compute and, more importantly, interpret some common ratios.

53

Learning Objective: 03-03 The determinants of a firms profitability.

26

Learning Objective: 03-04 Some of the problems and pitfalls in financial statement analysis.

5

Section: 3.1 Cash Flow and Financial Statements: A Closer Look

13

Section: 3.2 Standardized Financial Statements

8

Section: 3.3 Ratio Analysis

53

Section: 3.4 The DuPont Identity

26

Section: 3.5 Using Financial Statement Information

5

Topic: Asset management ratios

9

Topic: DuPont identity

26

Topic: Financial statement analysis

6

Topic: Long-term solvency ratios

11

Topic: Market value ratios

14

Topic: Operating activities

1

Topic: Profitability ratios

5

Topic: Ratio analysis

2

Topic: Short-term solvency ratios

10

Topic: Sources and uses of cash

7

Topic: Standardized financial statements

8

Topic: Statement of cash flows

5

1

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